We’d Make 100,000 BOEPD Through Acquisitions

Tunde Ogunnaike,  Managing director of Oando E&P Limited, the Nigerian independent, acknowledges that there’s a bit of impatience, among oil industry watchers, about his company’s pace of delivering the work programmes proposed to turn its assets into cash generating engines.

Why, for instance, has it not acquired a single kilometre of seismic data in the Oil Prospecting Lease OPL 278, since it won it in 2006? Its technical operatorship of Akepo, which was agreed upon in November 2008, is coming very slowly and things have been quiet even in OPL 236, in the south east of the Niger Delta basin.

Ogunnaike. a Shell scholar who comes across as extremely self assured, responds with a gush of words and almost turns the conversation into a monologue. “The story of OPL 278 is sad”, he laments. It’s right at the mouth of the Sombreiro river. That is at the heart of the Niger Delta crisis. We have been trying to shoot seismic for the last 18 months. Most seismic contractors don’t want to shoot for you. We have gone through the entire process with NAPIMS (the government company which approves work programmes for E&P firms). We were ready.

We are not the only one. If you go to OPL 282. which Agip is operating, nobody wants to do it. We are hoping that this (government’s) Amnesty with militants) will help relieve the security constraints and we can go back and do business”.

Even with all these handicaps, Ogunnaike announces with a flourish, Oando E&P had set a target of producing 100,000barrels of oil equivalent per day (BOEPD) by 2013. “We will get to the 100,000BOEPD through acquisitions. We are looking at several blocks in the Niger Delta. We note the tendency of the lOCs to move away from onshore to deepwater. We are basically saying that we are local boys and we can operate onshore. We are actually working to raise finance for those acquisitions.

“The rig for Akepo is coming in on Saturday”, he tells me disarmingly.. “We signed a contract with Noble; we’re going into production by early next year (2010).  We are doing an FDP(Field Development Plan) right now, to firm up additional wells.  We will be in production and, at the same time, getting ready to drill follow ups. We take seriously the DPR threat that by November (2009) they will take the license from you”.

Then as if acknowledging that I was holding Oando responsible for the slow pace of delivery of first oil in the field, he adds: “Don’t forget that we are not the operators. We’re just technical partners. Akepo, for me, is to demonstrate our technical capability. People often write off Nigerian independents as mere passive partners in projects. and that they don’t do the technical work”.

Mr Ogunnaike certainly wants to make me apologise for my assumptions: “We have production in deep offshore that Agip operates. We take Agip up on technical issues and they listen to us. For Akepo, the operator has delegated some of the functions to us as technical partners. And that’s going well. “The portfolio we have now cannot give us 100,000BOEPD. We need more acquisitions. We’ve recently acquired Equator. We bought the company. We are close to 9O° take over of the entire company now. That includes all its assets. They have assets in the JDZ, and rights to two blocks in the EEZ. They have stakes in OPLs 321 and 323. Equator has stake in the Bilabri block as well”.

When I have space to chip in, I explain that I didn’t think any of the assets that Oando has at the moment can deliver even half of 100,000BOEPD, even by 2015.’ Ogunnaike admits. “When we say we’re looking for acquisition, we are actually looking for producing assets or assets that are close to production. They cost a lot more but your risks are better managed.

“If you go by the current mood in the country, the government is keen to get indigenous companies more involved. Some 95% of the country’s crude oil production is by lOCs now, but the government would rather have more Nigerian companies producing.

“We see ourselves, first among equals when you want to assess oil companies. We’ve done enough to deserve attention when it comes to indigenous companies. We don’t play the game of let someone come and carry us. The last game we played, which was buying into Shell assets in Agip operated deepwater acreage, we actually raised close to $700Million, for more than 400o stake in each of the two licenses, but Agip played the game and we ended up with 15°o, paying about $200Million. Our international financiers liked the experience of that process with us and are willing to partner with us to do more”.

Now that I’ve gotten so much information about Oando, I ask Mr Ogunnaike what he is doing working for a start up like Oando E & P Ltd.  He had spent quite a number of Years working for Shell.

He responds that he didn’t start out looking out to work for another company after his 30 year career with Shell. He happened to be headhunted and he thought it wasn’t a bad idea. “I thought it was a fantastic challenge doing something for the local content. It’s been a very interesting challenge”.

It so happened that the company was just concluding the deal with Agip when he came in, but he has been superintending the rewards and he a. excited by the returns. One of the blocks is producing the Abo field. The other has a discovery called Oberan. “Even in the producing block, there’s another prospect, Abo South,that we’re looking at drilling before the end of 2009, or early 2010. It’s a separate field, but related. The probability of success is almost 100”o. Wed drill that and tie it to the FPSO and maintain the plateau for Abo production. which is currently doing about 29,000BOPD. It declined from about 32,000BOPD this year. The Abo South drilling should arrest that decline’.

Although the fields that are most readily available for an investor in the Nigerian portfolio are those that are marginal, either in relative (geographical location, nearness to producing facility) or absolute terms(size), Ogunnaike is not bullish on marginal fields.

“Personally, as a petroleum engineer, the effort you put in to develop the marginal field is the same that you put into developing the bigger field. It’s the same discipline. It’s the same quality check, and you still go through all the hassle of community obstructions. If you are going to be a 10.000BOPD company, that’s fine. But if you are looking for more, you should be going for a bigger game”.

Ogunnaike has been privileged working in the plummest job in the Nigerian economy for all his life. He won the Shell scholarship to study in the UK straight from the prestigious Government College Ibadan in 1974 and got some of the best jobs all through his career with Nigeria’s largest oil and gas producer.

I ask him what he considers the most exciting phase of his career with Shell. He has some interesting examples “There was considerable challenge with procurement; we  were having people who weren’t ordering the right things.  I had a two year stint in procurement; five years after I joined”.  He returned to petroleum engineering, did production technology for a while.  Then an opening came up in Economics and Planning in the Western Division.

He lights up.

“That job provided, for me, an overview of the business.  It showed me how the money is made in this business.  After a while, he left for cross posting in the UK, where his job was to justify a lot of the exploration wells that were being drilled in the Central North Sea.  That was for four years.  He returned blocks not to Economics, not to Petroleum Engineering, but to production. “I was in charge of production planning and programming, which I find very interesting”.

As community disturbances heightened the anxiety about safety of lives and limbs in the Niger Delta basin in the earlier five years of this decade, Ogunnaike got tired of staying in Warn, the second largest city in the region. He wanted to go to Lagos. The only job available was in SNEPCO, (the Shell Nigeria subsidiary involved in deepwater and frontier activity). “I came to SNEPCO to head economics and planning”, he recalls. He was the Petroleum Engineering Manager for Bonga at the time that this Nigerian flagship deepwater field was getting close to coming on stream .”I had a team set up in Houston, where most of the work was being done. That was where we trained the operators”. He sees that as perhaps the signal point of his career: coming to see Bonga doing 200,000BOPD “For most of my working life with Shell, we were seeing wells doing 2,000 to 4,000BOPD. In Bonga, we are seeing wells doing 30,000BOPD.” His very last job for Shell was as General Manager Commercial Operations for Africa.

I ask him whether he didn’t see his Oando E&P as top heavy, with five or so geologists and petroleum engineers who’d spent over 15 years in the industry and hardly any young technical personnel who is learning the ropes. When as he says, the Oando team challenges Agip on technical issues, where are the young Nigerian petroleum professionals to learn from the challenge? Ogunnaike’s response is to open a floodgate of information about Oando’s capacity building exercise. “You need to build that capacity gradually, not to flood the place with engineers and geologists when you don’t have the assets. They’d get bored. I have made a commitment that I want three petroleum engineers every year, feeding the funnel. Right now, I have got three petroleum engineers of not more than three years experience and I have got one with 12 years experience”. Oando itself, in broad terms, has a Graduate Training Programme, which started in 2009, where we take 20 graduates, fresh from the University, and get them through a grueling one year training programme, consisting, in part, of working in every Oando subsidiary, from far downstream (petroleum product retail) to the upstream (exploration and production). I ask him what his plans are after the magical 100, 000 BOEPD “If I take the company to 100, 000 BOEPD I’d consider leaving”.


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